Theta

What it means

The change in an option’s value from the passage of one day, all else equal.

The exam angle

Negative for a long option: time decay works against the buyer and accelerates into expiry.

Where it appears in the syllabus

• DerivativesCFA Level II · exam weight 5–10% · Forward commitments and contingent claims — binomial, BSM, the Greeks.
• Valuation & Risk ModelsFRM Part I · exam weight 30% · VaR and ES, option valuation, bond risk, stress testing, credit and op risk.

Related terms

• Black–Scholes–Merton modelA closed-form model for European option prices, assuming lognormal prices, constant volatility and continuous…
• GammaThe rate at which delta changes as the underlying moves.
• Implied volatilityThe volatility that, put into an option pricing model, returns the option’s observed market price.
• RhoThe sensitivity of an option’s value to a change in the risk-free rate.
• VegaThe change in an option’s value for a one point change in implied volatility.
• Delta hedgingOffsetting an option position with the underlying so the combined position is insensitive to small price moves.